Tax rise hits European service industries
EXPANSION in European service industries slowed last month after a tax increase in Germany damped consumer spending in Europe’s largest economy, Bloomberg News reported yesterday.
Royal Bank of Scotland Group Plc’s services index, which gauges growth in industries from telecommunications to banking, fell to 57.5 from 57.9 in January. A reading above 50 indicates expansion. Economists expected the index, based on a survey of purchasing managers by NTC Economics Ltd, to fall to 57.6, the median of 33 estimates in a Bloomberg survey showed.
Europe’s economic growth may moderate this year from the fastest expansion in six years in 2006 as higher value-added sales taxes crimp household spending in Germany and global demand for European exports wanes. The European Central Bank has still signaled it will raise interest rates this week to keep prices in check as unions demand more pay for workers.
“You’d expect Germany to be weaker on the VAT increase,” said Ed Teather, an economist at UBS AG in London. The index “is still at a reasonable level, suggesting reasonable rates of growth.”
Business expectations in service industries improved in February, with the sub-index rising to 68 from 67.8, the highest in 13 months. Manufacturing growth in the euro region also picked up in February, a survey showed last week. Royal Bank of Scotland’s index of manufacturing sentiment rose to 55.6 after a reading of 55.5 in December.
“Growth momentum has remained firm in the first part of this year,” said Silvia Pepino, an economist at JPMorgan Chase & Co in London. “Hiring continues at a solid pace.”
Unemployment in the euro region fell to 7.4 percent in January, the lowest since the data was first collected in 1993.